Government Provides Relief for Certain Healthcare Penalties

If you are a “small employer” who reimburses employees for health insurance premiums, or a 2% S corporation shareholder who is reimbursed for health insurance premiums, then recently released IRS guidance provides you valuable relief from potential excise taxes.

For 2014 and through June 30, 2015, small employers can continue these reimbursements or payments directly to an insurance provider for individual coverage without incurring an annual excise tax of $100 per day, per person. Additionally, until 2016 or the release of future guidance, whichever comes later, 2% S corporation shareholders can continue the reimbursements or payments without incurring the excise tax.

This relief is provided by IRS Notice 2015-17 (the Notice), which is in response to complaints by many employers that reimbursements to employees for health insurance premiums, although nontaxable if the payments were substantiated as reimbursements, would be subject to the IRC Section 4980D excise tax of $100 per day, per person, or $36,500 annually.

Notice 2013-54 stated that employment payment plans did not meet certain Affordable Care Act (ACA) rules and would be subject to the excise tax. An “employer payment plan” is an arrangement under which an employer either: a) reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy; or b) directly pays a premium for an individual health insurance policy covering the employee.

For this purpose, a small employer is one who has fewer than 50 full-time (or full-time equivalent) employees on business days during the preceding year. The rules are the same as those used to determine whether an employer is an applicable large employer subject to the ACA requirement to provide health insurance to employees.

The Notice also provides relief to 2% S corporation shareholders by exempting reimbursements to those individuals from these rules. This relief exists until further guidance is issued or the end of 2015, whichever comes later.

In a separate announcement, the Department of Health and Human Services granted individuals another chance to enroll in health coverage for 2015. Individuals in states with access to a federal Marketplace who were uninsured in 2014 and subject to the individual responsibility payment, may benefit from an extension of the 2015 enrollment period. If you are interested in taking advantage of this opportunity, note that the new enrollment period runs from March 15, 2015, through April 30, 2015. If you lack necessary coverage, then this window provides you an opportunity to apply for health coverage and potentially avoid the penalty in 2015.

For more information, please contact your Cherry Bekaert Tax Professional.